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What Small Mortgage Lenders Can Learn from Credit Card Settlement

MAY 12, 2014 11:05am ET
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The Consumer Financial Protection Bureau has once again utilized its broadest and most powerful weapon—Unfair and Deceptive Acts and Practices—to levy large fines. This time, it was Bank of America that received a $727 million dollar fine for "illegal credit card practices."

These practices included alleged deceptive marketing by inaccurately describing the benefits of certain add-on charges and the billing process for such charges. In particular, it is alleged that telemarketers "went off script" in describing the benefits and charges of certain credit protection plans to coax consumers into receiving them.

Many smaller lenders still utilize telemarketer driven leads for all or part of their business. Even more lenders rely upon loan officers during initial conversations with consumers to accurately communicate the benefits and risks of certain loan products as well as describing the lending process.

To the extent the CFPB can apply the unfair and deceptive acts and practices label to "off script" communications with consumers, lenders need to give particular attention to being able to prove what is said, by whom, and when. When it involves telemarketing—whether it is done by the lenders or a lead company they hire—lenders need to pay attention to the content of the script and the manner in which the telemarketer ensures it is followed, as well as a telemarketers' compliance history (after all, lenders could be held responsible for independent telemarketers through third-party vendor rules).

Addressing communications directly from internal loan officers, lenders need to rely upon training and should increasingly consider occasional monitoring to ensure proper communications are maintained. Better yet, lenders should consider integrating certain communications systems into the origination process that ensure the lender is able to document the accuracy of communications with borrowers.

Such processes do not detract from the origination process, but rather add to it by removing loan officers from the compliance process, and allowing them to focus on sales and customer service.

The last thing lenders want to consider these days is spending more on compliance. However, there are new options emerging that protect lenders and assist in origination efforts. More than ever, lenders should consider new alternatives to avoid the risks of "off script" communications.

Ari Karen is an attorney at Offit Kurman.

Comments (2)
Its about time. Every consumer and consumer protection attorney in the land knows that what always happens from the car dealership to the mortgage lender is that the salesperson or telemarketer is pushed and incentivized to get sales. They see someone else on their team breaking the rules and getting pats on the back, bonuses and promotions and slowly but surely everyone starts saying whatever it takes to get the sale. Then the sales manager and company say that is not what the salesperson was trained to say and that they will fire the salesperson and that they are committed to honest up front communications blah blah blah. They also refer to their contracts which tell the potential customer that they can only rely on the written contract rather than anything the salesperson says to them. It's about time that the company is held responsible for what the salespeople actually say rather than what they are supposedly encouraged to say in all the companies written materials. We all know the favorite tactic is to encourage the salespeople to get sales by whatever means and them use them as a scapegoat if you get caught.
Posted by Michael S | Monday, May 12 2014 at 2:13PM ET
It does not matter how much B of A is fined. They just write out a check...no big deal.....they will do more of the same in the future. Nationstar Mortgage is another abuser but the fix is in.
Posted by phil D | Monday, May 12 2014 at 2:19PM ET
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